When turning to a third-party service provider, some businesses are unwilling to take their hands off the rudder.
“That’s a big problem,” says Peter McAdam, president and CEO of Everest Group Canada, which provides outsourcing consulting services. “You need to understand you’re outsourcing to obtain results from that third party and you should be measuring to the results you expect, not the activity the supplier will go through to get those results.” In other words, manage to outputs, not to activities.
When developing an outsourcing strategy, McAdam says it’s important to assess the value it can bring to your business, develop a change management plan and governance model, and develop a strategy for renewing or ending an outsourcing relationship. A lot of work is often put into ironing out the details of an outsourcing arrangement, he says, but in order for the contract to stand the test of time, it needs to be flexible.
Make sure you understand who is responsible for what, he says. Focus on quality and have specific service levels in place that are clear to both parties. And have a penalty in place that’s meaningful to the supplier, so they’ll meet or exceed service levels.
“Then you need to manage that,” says McAdam. “Eighty per cent of the effort in putting the contract together comes up front, but 80 per cent of the value comes in the execution.”
On the buyer side, there’s a lot of executive attention on signing contracts, but after the ink is dry, many of these people disappear.
“You need some mechanism in place that will ensure you’re going to get the delivery value you were looking for,” he says. “Don’t underestimate the resources and effort you need to put in to have effective governance.”
There should also be a process in place for resolving conflicts. “You don’t want to have an antagonistic or finger-pointing approach,” he says. When things do go wrong, there should be a process for escalation and conflict resolution within the governance model.
A few years into the relationship, see how well the contract is performing against original expectations. “Is there synergy and productivity or has it got into finger-pointing?” said McAdam. “If you’ve got to be hauling the contract out and reading the fine print all the time, then that’s going to be a tough way to manage the deal.”